Shares in Australia and New Zealand Banking Group (ASX: ANZ) have easily outperformed the broader S&P/ASX200 Index (ASX: XJO) (INDEXASX: XJO) over the past year. Even before dividends are included!
However, by zooming out and taking a wider picture, ANZ's total shareholder return is 160% over the past decade. More than three times the market's return.
So has ANZ passed its prime or is it still undervalued given its ability to produce market-beating long-term gains?
It's not an easy question to answer and, depending on who you ask, there could be a dozen different responses.
However, looking back at ANZ's past, it's easy to see why it has performed so well over the past two decades. Rising house prices, increased trade activity, GDP growth, increased migration and a mining boom have played a big part in ANZ's success.
While some prominent economic forecasters, including the RBA, expect lower GDP growth and an end to the mining boom, ANZ still has a number of growth areas it'll push into domestically.
For example, the bank is committed to increasing both its business banking and mortgage market share in the near term. This has been evident in recent studies.
In 2013 ANZ, who has the smallest share of Australia's home loan market, grew its mortgage portfolio quicker than any of its major peers.
However ANZ's future success will depend on its Super Regional Strategy, not its domestic growth prospects.
Through its International and Institutional Banking division ANZ's Asia Pacific, Europe and Americas (APEA) markets remain the targeted growth areas. Through a rollout of its retail branch network, foreign exchange, increased international banking and trade flows, the bank hopes to massively increase its customer base and derive 25% to 30% of revenues from the markets by 2017.
Buy, Hold or Sell?
When it comes to Australia's big banks there's two things I'm confident we'll see unfold in the future:
1. ANZ will grow faster than its domestically focused peers; and
2. The best time to buy the banks will prove to be during a major economic setback (such as the GFC).
Although I believe ANZ is a promising long-term investment, I'm not prepared to pay at its current price. If interest rates and bad debts rise or we encounter a market setback sometime in the near future, I believe ANZ should be the first big bank you consider buying.
